As more people take up the option of shopping for their social care with individual budgets, local authorities face a dilemma about the fate of their own provider services: change or cut.

This is because many people will choose to spend their budgets with the private sector, and the council-run provider’s block contract will diminish.

Moreover, councils are barred from competing for business with the private sector in the case of direct payments (although not with individual budgets).

Local authorities face the prospect of either putting their provider service out to tender, or hack away at them and make redundancies.

But there is a third way: local authority trading companies. Essex Council has just set up the first one to provide social care services.

Essex Cares is wholly owned by the council, and is overseen by a board of 15 councillors with an independent chair, who meet every six weeks.

It employs 850 former council staff from adult community support, the equipment service and employment and inclusion.Human resources, staff development and even legal liability are also taken over from the council.

David Finch, cabinet member for adult, health and community well-being at Conservative-controlled Essex, says trading companies have distinct advantages over outsourced services.

“The current forecast is there will be no surplus for two or three years,” he says. “But the council can then determine that any surplus is returned to the shareholder – the council – and then to the taxpayer as a reduction in council tax.

“Otherwise, Essex Cares may have a business case for how to make good use of the surplus, and it would be reinvested in the company. That subtlety and flexibility is not available if you just outsource a service.”

The second reason given for a trading company approach is that staff will feel more secure. Local trade unions are nervous due to a wave of tribunals over pay cuts after 10 Essex care homes were sold to Excelcare Holdings plc.

Each home was run by a separate subsidiary, of which some declared losses and imposed new staff conditions early in the contract.

“That was a total embarrassment to the council,” says Unison branch chair Mick Mahoney. “My fear is there’s an agenda to outsource all the council’s responsibilities to the private sector. This [trading company] is just a spearhead of where they want to go.”

Pledge on job losses

Finch points out that the council will retain complete control of Essex Cares, while Excelcare was independent. “Looking at reductions in staff would not be on my radar,” he says.

Essex Care’s group managing director, Mike Walsh, agrees. “There will be no redundancies. This is not about losing staff.”

He says his staff regard the company as saving their jobs. “Essex was one of the 13 pilots and moved quickly to personalisation. That began to threaten the extinction of the whole service.

“Staff see this as an opportunity, not a threat; otherwise the service would slowly fade in this world of personalisation, which is one of the main drivers behind this change.”

However, Essex is not that far ahead of the curve with personalisation. In April, 7.8% of those receiving community-based social care in the county had an individual budget or direct payment, compared with 6.5% nationally.

Will the council keep control of the company indefinitely? Essex Cares has a three-year contract with a possible two-year extension. After that it must bid against private companies for the business.

A report to the council’s cabinet in January noted: “Whilst Essex CC is the sole shareholder at present this may not always be so.”

Finch says that in future health partners may take a minority stake in the company, but it’s not for sale.

“If we are trading successfully we would wish to retain 100% ownership. The only deals we would consider would be strategic ones with the NHS.”

Reshape services

The third reason for forming a trading company is a belief that it will be better at adapting to a fast-changing marketplace in adult care. “It’s sometimes difficult to be responsive to a changing market, which is what personalisation will probably create,” says former social services director Ray Jones.

“Maybe a trading company will be able to reshape their services and business very quickly – that should secure future jobs. One thing any adult social services department can’t afford to do is stand by and watch personalisation move forward and not enable provider services to compete.”

Having got off the ground early, the company can bid to run provider services for other local authorities and even primary care trusts, which were recently told to separate their purchaser and provider functions.

Walsh says the company has already expressed interest in running provider services for a local PCT, although he admits this is something of a long shot. Marketing “products” will be key when people can shop around for their care. Walsh talks of ultimately tailoring bespoke care packages, although he wants the transition from council to trading company to be seamless, “a quiet revolution”.

It’s too early for user groups to compare the new company with the old service yet, but they are supportive.

“There’s a need to think innovatively about services and this is a good example of a local authority thinking differently,” says Richard Watts, policy director with Essex Coalition of Disabled People (ECDP).

“Users care about quality of service rather than the mechanism. Is the service accessible, approachable and responsive?”

Nevertheless, the move to personalisation is bringing a growth in demand for advocacy and brokerage services to help people choose their care package.

ECDP says it is coping with the increase at present, while Essex Cares is considering selling its own personal assistant service in the future.

Essex has not placed much emphasis on this being a cost-cutting manoeuvre, probably because it will not save much. The pilot evaluation showed that personal budgets are not cheaper than traditional service delivery.

Perhaps that is why Essex Council requires only 2.5% annual efficiency savings in the company’s £33m contract – no more than in-house services have to find.

Scope for savings

Walsh says there was scope for savings: the back office service has been “streamlined” and sickness rates (formerly high) have returned to the council average.

However, the company hasn’t entirely broken free of targets, having to satisfy the board of councillors yearly that it has met 39 performance indicators.

Social workers who remain employed by the council have also had to adapt to the new arrangements in commissioning. Walsh believes the trading company has changed their practice already. “Some assessors have stopped looking at it as a free service,” he says. “They are more aware of what they are commissioning and what the costs are.”

On the future, Andrew Cozens, adviser on adults’ services with the Improvement and Development Agency, says local authorities should be intervening to shape the new social care market. “Councils have a clear commissioning responsibility in this changing context to help ensure there is enough supply for all those needing services as well as helping providers to change.

“It makes sense to think early about the position of the authority’s own services. Some have refocused them on reablement and emergency responses. Others have reduced their in-house provision in anticipation of the changing context. Presumably Essex is using this company to help gain greater flexibility.”

There are still only 5% of service users on individual budgets across the country, although that number is set to increase rapidly.

The policy of commissioning for individual choices is backed by both Labour and the Conservatives and is unlikely to be rescinded. As social care consultant Melanie Henwood observes: “The genie is out of the bottle and you can’t put it back.”

The middle way forward

Councils with good performance records may set up local authority trading companies under the Local Government Act 2003. They represent a halfway house between keeping services in-house and tendering out the contract.

Several examples already exist in waste management, street cleaning, facilities management and residential care homes. Essex Cares is the first example in social care.

In housing, some councils have handed responsibility for estate management to arm’s-length organisations, although the council still owns the stock.

This article is published in the 1 October issue of Community Care magazine under the heading Trading places

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